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Uber and the Metered Taxis: It’s Not About Price

14 Mar 2017

Last night, I saw warnings popping up in my Facebook feed of a repeat performance of last Friday’s metered taxi strike against Uber. It was apparently meant to take place this morning, but didn’t (or, at least, I haven’t seen anyone lash out about it on twitter). But almost all my weekend social conversations revolved around Uber, and the metered taxis, and how metered taxis are the worst.

Here’s the basic problem:

Or, rather, that’s the ‘alleged’ basic problem.

Who uses Uber?

I have lived in South Africa since 2004.

UberBlack launched in Johannesburg in August 2013; followed by UberX a year later.

Here is the total number of times that I took a metered taxi in the decade prior to Uber’s arrival in South Africa:

Zero

These are things that I did instead:

Caught lifts with friends (sometimes for free, sometimes not)

Took commuter taxis and/or pre-booked a lift with a non-metered lifting service.

Young (about 57% of Uber’s US users are between the ages of 24 and 35)

Male (60%)

Educated (more than 80% of Uber’s US users have a bachelors degree or higher)

Affluent (at least 56% of Uber’s US users have gross household incomes of more than $71,000 per year).

I doubt that the South African market is especially different. For most users, I’ll bet that Uber was not a substitute for taking a taxi: it was a substitute for being a burden on your friends and family by trying to wiggle out of designated driver duty.

And conveniently, Uber is also a substitute for driving yourself.

All this means that the new class of Johannesburg Uber user is not really the problem. We were never big users of metered taxis, and so we’re not the main gripe.

So which customers did Uber ‘steal’ from the metered taxis?

To answer this, another question: which highways did the metered taxis block during their strike?

The R21 and the R24. That is: the highways to and from the airport.

Also: which Gautrain station has had metered taxi drivers attacking Uber vehicles (and users) with knobkerries and bricks?

Sandton. That is: the main transit point for train passengers traveling to and from the airport.

And therein lies the heart of the problem: because air travelers did not have many options, metered taxis could charge premium fares. And the metered taxi industry built their business model on the back of ignorant tourists willing to pay London and New York-style taxi prices.

But Uber is now an option.

And is it about price?

I suspect not (although that’s always a nice additional extra). Here are other (more important) reasons that Uber is better for travelers:

Uber is used all over the world. If you use it in one place, you’ll feel comfortable using it everywhere.

There is less risk of hidden surprises – everything is handled by the app.

Tipping issues are a things of a past – everything is handled by the app.

When it comes to payment, there is no need to hunt for local cash – everything is handled by the app.

You don’t have to rely on the driver’s route – the routing is handled by the app.

If you leave something in the Uber by mistake – you can handle it through the app.

And speaking as someone who is both a frequent business traveller and a less-frequent-but-still-regular tourist, I would pay a premium in a foreign country to use Uber instead of an unknown taxi service.

That is:

If Uber costs less than a metered taxi, I’ll use Uber because Uber is safer and cheaper.

If Uber costs the same as a metered taxi, I’ll use Uber because Uber is safer.

If Uber costs a bit more than a metered taxi, I’ll still use Uber because Uber is still safer.

It’s why the demand is not“Uber must raise its prices.”

Instead it’s: “Deactivate that app.”

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, or like the Rolling Alpha page on Facebook at www.facebook.com/rollingalpha.

The price issue is probably real though, if indirectly, since Uber has been practicing classic anti-competitive practices to gain market share. They’ve been pumping their billions of dollars of investor funding directly into undercutting the competition, and doing it for over a decade, on top of bypassing employment legislation and a ton of other regulations while trying to play the role of the aggrieved start-up being blocked by Big Taxi (seriously, Big Taxi has $17 billion dollars to play with?). That doesn’t mean that Uber would have been more expensive than metered taxis if they’d played by the book, but it definitely helped them gain traction. The main reason most people went for Uber was convenience AND price. Do you remember first hearing about it and signing up? It was your mates saying “hey, check this out, you can get a ride for just a few bucks and it’s really easy”.

I suspect Uber could become the Napster of ride-hailing, since much of their business model is really easy to replicate (apart from the “losing billions of dollars of investor capital” part). Their app is easy to replicate and if smaller local firms can get enough loyalty from city residents and regular visitors by emphasising all the convenience of Uber without being a dick, smaller firms could probably compete.

And their customer service has been declining, at least in Joburg. We switched to another app simply because we were being repeatedly screwed by both Uber and its drivers. The drivers were probably doing it just to survive, considering how many of them actually lose money driving for Uber, but Uber itself didn’t have an excuse.